Mr. Armando M. Villacin

August 23, 1995 Mr. Armando M. Villacin Asian Lending Investors, Inc. 36-2 Jet House, Osmea, Cebu City S i r : This pertains to your letter addressed to Bangko Sentral which was referred to this Commission, requesting opinion on the query posed therein on the basis of the following facts: 1. Mr. X, a supplier of construction materials comes to ASIAN LENDING INVESTORS, INC., to apply for a loan. He brings with him a purchase order (P.O.) issued by his customer. The proceed of the loan which is used to finance the purchase of materials are mentioned in the purchase order (P.O.). 2. Mr. X comes to ASIAN LENDING INVESTORS, INC. to apply for a loan. He brings with him a post-dated check issued by Mr. B payable to him. Your query is, if Asian Lending Investors, Inc. grants loan under the facts above-mentioned, is the company engaged in financing company activity under RA 5980, by way of factoring of receivables? The New Rules and Regulations to Implement the Provisions of Republic Act No. 5980, as amended, otherwise known as the Financing Company Act, defines "Financing companies" as follows: a. "FINANCING COMPANIES" are corporations or partnerships, except those supervised by the Central Bank of the Philippines, Office of the Insurance Commission and the Bureau of Cooperatives Development, which are primarily organized for the purpose of extending credit facilities to consumers and to industrial, commercial, or agricultural enterprises by discounting or factoring commercial papers or accounts receivable: by buying and selling contracts, leases, chattel mortgages, or other evidences of indebtedness; or by leasing of motor vehicles, heavy equipment and industrial machinery business and office machines and equipment, appliances and other movable property. " (Emphasis supplied) The terms " discounting " and "factoring" in the above definition are further defined as follows: h. " DISCOUNTING " is a type of receivables financing whereby evidences of indebtedness of a third party, such as installment contracts, promissory notes, and similar instruments are purchased by or assigned to, a financing company in an amount or for a consideration less than their face value. (Emphasis supplied) i. " FACTORING " is a type of receivables financing whereby open accounts not evidenced by a written promise to pay supported by documents such as but not limited to invoices of manufacturers and suppliers , delivery receipts and similar documents are purchased by or assigned to a financing company in an amount or for a consideration less than the outstanding balance of the open accounts." (Emphasis supplied) Thus, applying the above definitions, if the purchase order and post-dated check are assigned for a consideration less than the face value thereof to the Asian Lending Investors, Inc. who will then be subrogated as creditor, the transaction would be tantamount to discounting or factoring of receivables as defined above, hence, subject to the requirements under RA 5980, and its Implementing Rules and Regulations. However, if they are merely used as collaterals for the loan applied for, the transaction would be treated only as a simple loan. LibLex Please be advised accordingly. (SGD.) FE ELOISA C. GLORIA Associate Commissioner